Oriana Power NSE SME IPO review (May apply)

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Review By Dilip Davda on July 29, 2023

•    OPL is in the business of providing solar energy solutions 
•    It is operating in a highly competitive segment with the entry of many new players.
•    The sudden boost in its top and bottom lines for FY22 and FY23 raises eyebrows.
•    Based on its FY23 super earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long-term rewards.

ABOUT COMPANY:
Oriana Power Ltd. (OPL) claims that it is a company that specializes in providing solar energy solutions to industrial and commercial customers. It offers low-carbon energy solutions by installing on-site solar projects such as rooftop and ground-mounted systems, as well as off-site solar farms i.e. Open access. The company's business operations are primarily divided into two segments: Capital Expenditure (CAPEX) and Renewable Energy Service Company (RESCO).

Under the CAPEX model, it offers Engineering, Procurement, construction, and operation of solar projects. In this model, customers invest in the Capital Expenditure on their own and Oriana does Engineering, Procurement, Construction, and Operation on behalf of the client. This model may be executed in various manners such as rooftop and ground-mounted systems, as well as off-site solar farms. Under CAPEX Model the company has delivered projects with a capacity exceeding 100 MW at various locations across India till date since commencement of business activity in this area of service i.e. June 2017.

Under the RESCO model, OPL operates through 18 subsidiaries. Its subsidiaries provide solar energy solutions on a BOOT (Build, own, operate, transfer) model basis, allowing customers to enjoy the benefits of solar energy without the upfront investment. All the Investment, Commissioning and maintenance are done at the company's end and in lieu of that it sells power to the end consumer through a Power Purchase agreement generally agreed for 25 years. As of June 30, 2023, it had 56 employees on its payroll. 

OPL's marquee client list includes Tecniqa Green Ventures, OPPL SPV, Mrs. Bectors Food, Green Affiliates, Raav Solar etc. Some of its ongoing projects have faced overrun/delays as well. With many new players entering the field, it has become a competitive segment. However, considering the incentive scheme from GoI, this segment has bright prospects ahead. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5055600 equity shares of Rs. 10 each via a book-building route. It has announced a price band of Rs. 115 - Rs. 118 per share and mulls mobilizing Rs. 59.66 cr. at the upper cap. The issue opens for subscription on August 01, 2023, and will close on August 03, 2023. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.36% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, the company will utilize Rs. 23.00 cr. for working capital, Rs.20.00 cr. for investment in subsidiary companies, Rs. 2.00 cr. for capex on infrastructure and technology for expansion, and the rest for general corporate purposes. The company is a holding company with 18 subsidiaries. 

The company has reserved 255600 shares for the market maker and from the rest, it has allocated 2400000 shares for QIB, 720000 shares for HNIs and 1680000 shares for Retail investors. 

Corporate Capital Ventures Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Share India Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 52.50 - Rs. 105 per share between February 2023 and June 2023. It has also issued bonus shares in the ratio of 1 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. 5.00 per share. 

Post-IPO, OPL's current paid-up equity capital of Rs. 14.13 cr. will stand enhanced to Rs. 19.18 cr. Based on the upper band of the IPO price, the company is looking for a market cap of Rs. 226.36 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, OPL has (on a consolidated basis) posted a turnover/net profit of Rs. 30.83 cr. / Rs. 1.02 cr. (FY21), Rs. 124.97 cr. / Rs. 6.94 cr. (FY22), and Rs. 137.30 cr. / Rs. 10.92 cr. (FY23). The quantum jump in its top and bottom lines for the last two fiscals raises eyebrows. 

For the last three fiscals, OPL has reported an average EPS of Rs. 20.85 and an average RoNW of 35.36%. (These data are based on its paid-up capital as of March 31, 2023). The issue is priced at a P/BV of 2.47 based on its NAV of Rs. 47.74 as of March 31, 2023, and at a P/BV of 2.42 based on its post-IPO NAV of Rs. 48.68 per share (at the upper cap).

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 20.7. Thus the issue appears fully priced.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown KPI Green Energy and Gensol Engg as their listed peers. They are currently trading at a P/E of 37.87, and 72.55 (as of July 28, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from Corporate Capital in the last three fiscals (including the ongoing one). Out of the last 7 listings, 2 opened at discount and the rest listed at premiums ranging from 17.65% to 231.63% on the listing date.

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